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Topic: Economy

As you watch President Obama's class-warfare-soaked State of The Union address tonight, keep two things in mind.

He's a liar and a demagogue.

Taxation is only half of the story at best.

You have to watch spending too. The poorest Americans got back $8.21 for each $1.00 paid in taxes. The middle class got back $1.30 for every $1.00 paid in taxes. The rich got back $0.41 for every $1.00 paid in taxes. Yes, really.

Here are two ways to compare unemployment during all recessions after World War II. The first graphic aligns all recessions at their beginnings, while the second aligns them at their deepest points. Click either one for the full-size image.

Veronique de Rugy points out a study just released by economists at the European Central Bank:

Basically, an increase in government spending (whether financed by taxes or by borrowing) reduces economic growth. This is consistent with a paper from a few years ago by Harvard Business School's Lauren Cohen, Joshua Coval, and Christopher Malloy. To their surprise, those authors found that federal spending in states caused local businesses to cut back rather than grow.

But ... but ... what about the multiplier effect of government stimulus spending?

On Tuesday I will announce my "Cut, Balance and Grow" plan to scrap the current tax code, lower and simplify tax rates, cut spending and balance the federal budget, reform entitlements, and grow jobs and economic opportunity.

The plan starts with giving Americans a choice between a new, flat tax rate of 20% or their current income tax rate. The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents.

...

e will lower the corporate tax rate to 20%--dropping it from the second highest in the developed world to a rate on par with our global competitors.

I guess you could call it the 20-20-0 Plan. Unlike Herman Cain's somewhat fuzzy 9-9-9 Plan, this one will supposedly target spending too (which is critical). Unlike Mitt Romney's 87-page snoozer, people will presumably read this one.

It'll be impossible to score, though, because of that "choose your own tax system" feature. It'll be impossible to predict how many people (and which people) will pick this new option if it's made available. All anyone can do is score it as if 100% of taxpayers choose to switch, which won't happen.

This visualization helps explain things so well that I'm republishing an old post to drive the point home.

The current national debt is 14.8 trillion dollars. That's a big number, but when the talking heads on TV start talking about billions and trillions, the shock value wears off. They might as well be discussing "gazillions."

That's the current national debt. We're already on the hook for all of it. But what about our future commitments to pay for Medicare (both the old familiar program and the new prescription drug benefit) and Social Security? Unless we cut federal spending to sane levels, the best guess so far is $114 trillion. What does that look like if you count it all out in $100 bills?

According to the Obama Administration, this is how federal government spending works miracles (emphasis mine):

Well, obviously, it's putting people to work. Which is why we're going to have some interesting things in the course of the forum this morning. Later this morning, we're going have a press conference with Secretary Mavis and Secretary Chu to announce something that's never happened in this country -- something that we think is exciting in terms of job growth. I should point out, when you talk about the SNAP program or the [food] stamp program, you have to recognize that it's also an economic stimulus. Every dollar of SNAP benefits generates $1.84 in the economy in terms of economic activity. If people are able to buy a little more in the grocery store, someone has to stock it, package it, shelve it, process it, ship it. All of those are jobs. It's the most direct stimulus you can get in the economy during these tough times.

If this is true, shouldn't the federal government immediately hand out a trillion dollars' worth of food stamps, thus generating 1.84 trillion dollars of economic activity? In fact, shouldn't they hand out a billion trillion?

That red line is the Pelosi-Obama-Reid Recession. This is what you get when you look to federal government spendingstimulus "jobs bills" and regulation to rescue the economy from a recession that the federal government caused. Click the image to see it at full size.

Remember this chart from Monday? I updated it to show the farthest the Standard & Poor's 500 Index dropped below its 365-day simple moving average during the two "close calls" marked by green arrows.

On Monday the S&P 500 closed at 7.74% below its 365-day SMA. Yesterday it rebounded a bit, but still closed at 1172.53 -- 3.37% below the Red Line of Doom™. As of right now, it's down another 34.64 points.

Since 1995, whenever the index has closed at 4% or more below the 365-day SMA, it has experienced a major drop.

11:30 PM Update: Today's close was 1120.76, which is almost exactly where we were after Monday's slide. How does a nice, fat 7.64% under the SMA grab you? Unless something fundamental has changed since the 2008 crash, I think we're going to see blood on the trading floor.

Don't just look at the Dow Jones Industrial Average. It's the best-known financial statistic, but it doesn't tell the whole story. The Standard & Poor's 500 Index tracks a much larger and much more diverse group of stocks than the DJIA's mere 30 industrial companies. It's regarded as a pretty good bellwether for the entire United States economy.

If you go to Yahoo! Finance and mess around a bit with the chart for the S&P 500 by adding a simple moving average for the last 365 days (the red line), here's what you'll see for the period from 1995 to now:

The purple arrows that I Photoshopped into the chart mark the points when the S&P 500 dropped significantly below its 365-day SMA. The green arrows mark the points when the closing price only briefly dipped below it. As of today, the closing price is a little bit more than 1% under the Red Line of Doom™. Watch closely this week, because I think this chart's going to get another purple arrow.

Great news, everyone. Remember how we were assured that the debt ceiling increase was absolutely essential to preserve the United States of America's AAA credit rating? It turns out the politicians lied again.

Ratings agencies have warned the country to reduce its debt-to-GDP ratio quickly or facing losing its coveted AAA debt rating. Moody's said Tuesday that the government needed to stabilize the ratio at 73 percent by 2015 "to ensure that the long-run fiscal trajectory remains compatible with a AAA rating."

For you non-economists out there, the Gross Domestic Product is the dollar value of all goods and services produced in America in one year. For calendar year 2010 our GDP was $14,530,000,000,000. That's just a shade under fifteen trillion dollars, admittedly a hard number to comprehend. Since enacting the most recent debt ceiling increase agreed upon by the geniuses in Washington, our government promptly borrowed enough to push our debt to $14,580,000,000,000. That number is bigger than our GDP, making our Debt-to-GDP ratio larger than 1.

This is what's known among rational human beings as A Very Bad Thing™.

Here's the data that the Federal Reserve currently has publicly posted for our debt-to-GDP ratio, which is only current through January 1, 2010:

The last time our debt exceeded our GDP was in 1947, when we were winding down from World War II, but at least it was headed in the right direction. If you think the Tea Party is "extreme" in their views, how would you describe the behavior of the politicians and bureaucrats in Washington since the beginning of 2007 when Nancy Pelosi, Barack Obama, and Harry Reid took over and began spraying rivers of tax money across the fruited plains?

This debt ceiling increase was no victory. Giving the federal government a new $2.4 trillion slush fund makes about as much sense as giving whiskey and car keys to teenage boys. Time to swap out more Congressmen and Senators for less corrupt replacements.

There are no cuts, and we all know it. There are reductions in the rate of increase of spending. We're just gulping slightly less fiscal poison, so we're dying slightly less quickly than before. Until inflation kicks in. And assuming future Congresses choose to abide by this Congress' promises. And if we don't get involved in another war.

But hey, we only control 1/2 of 1/3 of the gubmint. It's not like Cut Cap & Balance was popular or anything. And the media will be mean to us unless we compromise, and they'll be nice if we do. It's still 1995, and Teh Interwebz have no effect. Tea Parry? What Tea party? Best we could do. Even though "next time" has never come yet, our GOP betters will really & truly make actual cuts after we win in 2012. Pinky swear.

Greetings, Republicans in the House and Senate who doubt that we rubes in Flyover Country understand baseline budgeting. We've seen what passes for "cuts" in the latest bill to raise the debt ceiling. You're not fooling anybody, geniuses.

House Majority Leader Eric Cantor (R-Va.) delivered a blunt message to the Republican Conference Tuesday morning: Quit the "grumbling" and "whining" and come together to rally behind Speaker John Boehner to pass his debt ceiling plan.

...

"The debt limit vote sucks," he said, according to an attendee of the closed meeting. But Republicans have three options, Cantor said: risk default, pass Senate Majority Leader Harry Reid's (D-Nev.) plan -- which he thinks gives President Barack Obama a blank check -- or "call the president's bluff" by passing the Boehner plan, which not only cuts deeply into domestic spending but calls for a bipartisan commission to find more savings.

I still remember the last "crap sandwich" we were asked to nosh. How'd that one work out?

The current national debt is fourteen and a half trillion dollars. That's a big number, but when the talking heads on TV start talking about billions and trillions, the shock value wears off. They might as well be discussing "gazillions."

That's the current national debt. We're already on the hook for all of it. But what about our future commitments to pay for Medicare (both the old familiar program and the new prescription drug benefit) and Social Security? Unless we cut federal spending to sane levels, the best guess so far is $114 trillion. What does that look like if you count it all out in $100 bills?

That's right, boys and girls! Rep. Sheila Jackson Lee (D-TX) couldn't come up with any plausible reasons to support President Obama's demand to raise the debt limit and raise taxes, so she simply reached for Old Reliable to explain all opposition to Dear Leader.

That shouldn't be a surprise to anyone, but to hear the Left's explanations, the federal government can extract more and more money from their preferred targets without any repercussions. In Progressive Fantasyland, rich fat cat CEOs who run oil companies, banks, and Fox News have a secret stash of unlimited money hidden somewhere in their corporate jets or on the grounds of their posh estates, from which they simply pull more money after Washington takes what it wants. The government spreads the wealth around, the members of the middle class find excellent green jobs with full dental benefits, the poor all move up to the middle class, everyone votes for progressives, conservatives crawl back into the bowels of Hell from whence they came, and unicorns poop skittles to feed the hungry.

In the real world the vast majority of American wealth belongs to the middle class, but facts never get in the way of a juicy class warfare talking point. Here in flyover country where common sense still exists, we know that taxes influence people's behavior. If the government collected no taxes whatsoever, then its revenue would be zero. Likewise, if the government taxed away every last cent people earn, revenue would also drop to zero. Nobody would have any incentive to conduct any economic activity at all, so there would be no wealth to tax. Somewhere in between no taxation and total taxation, there's a point where the government will collect the maximum possible revenue. The conclusion isn't magical, farcical, or deserving of ridicule. It's common sense. It's logical. It reflects reality.

It also means everything to your way of life, so pay attention.

Well-known supply side economist Arthur Laffer sketched out this thought experiment decades ago -- reportedly on a napkin over drinks with conservative political heavy hitters -- and came up with the curve that soon bore his name. Here's a very simplified version of the Laffer Curve:

Let's also dispense with the stupid assertion that taxing "the rich" will solve all of our problems. That won't work, because the problem is spending. Anyone who denies it is either uninformed, blindly partisan, or a liar.

When it comes to the economy, the main Democrat talking point for the 2012 election appears to be something along the lines of: "Sure, the stimulus was huge, but without it things would have been much worse." How do you reconcile that with this?

With the debt ceiling fight heating up, there's talk of a Balanced Budget Amendment again, but some don't think it goes far enough. Here's an interesting idea from John McClaughry that he calls Proposition Twenty. It's a proposed amendment to the U.S. Constitution that would limit the national debt to $20 trillion:

Sec. 1. The total amount of gross federal debt shall not exceed the greater of twenty trillion dollars, or the amount outstanding as of the date this Article is ratified.

Sec. 2. No officer or employee of the United States, nor of any institution created by the United States, shall authorize the emission, issuance, sale or purchase of any security or obligation of the United States, its agencies or instrumentalities, which would increase the gross Federal debt above the foregoing limit.

Sec. 3. Any citizen of the United States shall have standing to enjoin the action of any officer or employee of the United States, or his or her successors in office, where such action is alleged to be in violation of Section 2. The Supreme Court shall have original jurisdiction to hear and decide any action brought under this section. If after one hundred and eighty calendar days following the filing of such an action, the Supreme Court has rendered no decision thereupon, Article XVI of the Amendments to this Constitution shall stand repealed at the beginning of the next ensuing calendar year.

Sec. 4. If the rate of increase of total receipts of the federal government for any fiscal year exceeds the average rate of increase in national income over the four year period ending not less than six months nor more than twelve months before such fiscal year, the Secretary of the Treasury shall within the ensuing fiscal year use the excess amount of such receipts to purchase and retire outstanding federal debt; and the limitation imposed by section 1 shall be reduced by a like amount.

Sec. 5. Congress may, by adopting a joint resolution declaring a state of war, suspend the effect of Sections 1 to 3 of this Amendment, but such suspension shall continue in force only during such period as the armed forces of the United States are engaged in actual armed hostilities against the armed forces of the nation against which the war was declared, and six months following the conclusion of those hostilities.

Matt Yglesias, whose popularity on the left appears to be inversely proportional to his understanding of the real world, repeats the age old lefty solution to deficits:

[We] used to have a debate in which the left said redistributive taxation might be a good idea and then the right replied that it might sound good, but actually the consequences would be bad. Lower taxes on the rich would lead to more growth and faster increase in incomes.

Now that idea seems to be so unsupportable that the talking point is switched. It's not that higher taxes on our Galtian Overlords would backfire and make us worse off. It's just that it would be immoral of us to ask them to pay more taxes even if doing so would, in fact, improve overall human welfare.

This chart shows -- in 2005 dollars -- the average American's share of individual federal income tax revenue from 1940 to 2011. This is how much Uncle Sam takes every year from each of us:

This chart shows -- in 2005 dollars -- the average American's share of federal spending from 1940 to 2011. This is the tab Uncle Sam sticks us with every year:

Some very intelligent friends of mine focus so intently on whether "the rich" are paying "their fair share" of taxes that they end up missing the big picture. Both taxes and spending are ridiculously high and getting higher.

President Obama and the Democrats in Washington, DC are lying to you. It is impossible to pay for their insane levels of spending by taxing "the rich." The rich don't have enough money to pay for that spending binge, even if the federal government confiscated their every last dime. The IRS data is beyond dispute. If he insists on the current insane level of spending, Barack Obama will have to raise massive amounts of taxes on the middle class to pay for it.

He's lying and he knows it. Standard & Poor's just downgraded the U.S. Government's credit outlook to "negative" for the first time in history, and it's all because the fools in Washington won't stop spending. This is awful, awful news.

As I said before, it's too late to fix our enormous deficit without pain. We can either feel some pain now and fix the problem, or we can keep living in Obama's fantasy land until we experience incredible pain a little bit later. Take your pick.

During his 2008 campaign, Barack Obama usually identified "the rich" as families earning income of $250,000 a year and up. He swore he'd never ever ever raise taxes one dime on anybody making less yearly income than that, and he swore he'd rein in federal spending.

After he took office in 2009, President Obama -- and his fellow Democrats who controlled Congress from 2007 to 2011 -- sent government spending rocketing upward so far that he's on track to add as much debt in one term as all 43 previous presidents combined.

Since the recent release of two detailed and comprehensive Republican plans to cut spending -- one by The Republican Study Committee and another by Representative Paul Ryan -- President Obama has apparently been shamed into responding with something slightly less insane than his original binge-spending 2012 budget.

This is what passes for an Obama plan for closing the deficit (emphasis mine):

The fourth step in our approach is to reduce spending in the tax code, so-called tax expenditures. In December, I agreed to extend the tax cuts for the wealthiest Americans because it was the only way I could prevent a tax hike on middle-class Americans. But we cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire in our society. We can't afford it. And I refuse to renew them again.

Beyond that, the tax code is also loaded up with spending on things like itemized deductions. And while I agree with the goals of many of these deductions, from homeownership to charitable giving, we can't ignore the fact that they provide millionaires an average tax break of $75,000 but do nothing for the typical middle-class family that doesn't itemize. So my budget calls for limiting itemized deductions for the wealthiest 2 percent of Americans -- a reform that would reduce the deficit by $320 billion over 10 years.

But to reduce the deficit, I believe we should go further. And that's why I'm calling on Congress to reform our individual tax code so that it is fair and simple -- so that the amount of taxes you pay isn't determined by what kind of accountant you can afford.

Tax the rich, tax the rich, tax the rich. All of our problems will be solved if we only tax the rich. Right?

Under the Obama tax plan, the Bush rates would be repealed for the top brackets. Yet the "cost" of extending all the Bush rates in 2011 over 10 years was about $3.7 trillion. Some $3 trillion of that was for everything but the top brackets -- and Mr. Obama says he wants to extend those rates forever. According to Internal Revenue Service data, the entire taxable income of everyone earning over $100,000 in 2008 was about $1.582 trillion. Even if all these Americans -- most of whom are far from wealthy -- were taxed at 100%, it wouldn't cover Mr. Obama's deficit for this year.

For the sake of argument, let's go with President Obama's "plan" and seize every last bit of money from any family making $100,000 a year or more. What next?

It's. Not. Enough.

Barack Obama is offering you a false choice: A) do nothing and watch Medicare, Medicaid, and Social Security collapse our entire economy into hyperinflation, government default and another Great Depression; or B) make no changes in Medicare, Medicaid, and Social Security, and pay for it all by massively raising taxes on the middle class (after redefining them as "the rich"). According to him, there are no other options.

He's lying.

Wouldn't you rather avoid raising middle class taxes, put reasonable restraints on spending for Medicare, Medicaid, and Social Security, and preserve those programs for those who truly need them?

It's too late to fix our enormous deficit without pain. We can either feel some pain now and fix the problem, or we can keep living in Obama's fantasy land until we experience incredible pain a little bit later.

Here's an updated version of something I put together by combining the Employment-Population Ratio (because the unemployment rate you hear reported in the news doesn't account for discouraged workers), along with a visual representation of which party controls the Presidency, the Senate, and the House. The data starts in January, 1948 and ends in March, 2011.

Click on the graphic below to see it at full resolution.

That horrible nosedive on the right is what you get when you put the modern Democrats in charge of all three. And here I was, thinking the Carter years (1977-1981) were bad.

Imagine that the Federal Whatchamacallit Administration (FWA) has a current budget of $100 billion for 2011. Now imagine that the happy little piglets in the Democrat-controlled Senate and the Obama Administration propose a 2012 budget that appropriates $150 billion for the FWA -- the better to spread some wealth among their political buddies. Pretty straightforward so far, and sadly very predictable:

Now let's say that the Republican-controlled House of Representatives objects, countering by setting the FWA's 2012 budget at $120 billion, which looks like this:

Naturally, if you're a tax-and-spend Washington politician and you hate being told "no", you immediately call a press conference to denounce the horrible "cut" in the FWA budget.

But wait! How can it be a "cut" if the budget went up? It's a common scare tactic that comes from a system called "baseline budgeting", and it's a deceptively easy way to scare uninformed voters into supporting the tax-and-spend piglets in expensive suits.

The Congressional Budget Office defines the baseline as a benchmark for measuring the budgetary effects of proposed changes in federal revenue or spending, with the assumption that current budgetary policies or current services are continued without change. The baseline includes automatic adjustments for inflation and anticipated increases in program participation. Baseline, or current services, budgeting, therefore builds automatic, future spending increases into Congress's budgetary forecasts.

Baseline budgeting tilts the budget process in favor of increased spending and taxes. For example, if an agency's budget is projected to grow by $100 million, but only grows by $75 million, according to baseline budgeting, that agency sustained a $25 million cut. That is analogous to a person who expects to gain 100 pounds only gaining 75 pounds, and taking credit for losing 25 pounds. The federal government is the only place this absurd logic is employed.

You can also sometimes see the flip side of this silliness in action when politicians try to paint themselves as budget-cutters, while actually spending more. You've heard of stores that fool consumers by artificially raising prices just before a "deep discount sale", right? Politicians pull the same trick regularly.

So the next time you hear scary stories like "Republicans will cut veterans' benefits", or "Republicans want to cut Medicare", don't swallow the bait without thinking. First, find out whether those sneaky politicians are playing the baseline budgeting game again.

The Fiscal Year 2011 budget deal announced on Friday reportedly involves cuts of $38 billion. It's hard to keep billions and trillions of anything in perspective. $38 billion is a huge pile of money, after all. So how do you get a sense for that amount?

The world's richest man, Carlos Slim Helu, has a net worth of $74 billion. Bill Gates is number two at $56 billion, followed by Warren Buffett at $50 billion. Charles and David Koch (the hated bogey men of progressives' fever dreams) have $22 billion each, and George Soros (the leftist Sugar Daddy of sugar daddies) has $14.5 billion.

A mere four months ago, the big controversy in conservative and Republican circles was whether the GOP had reneged on their vaunted pledge to cut $100B in spending in the current fiscal year because they had seemingly come down to $61B. As I noted at the time, there was no question that, if you looked at the fine print of the pledge, the commitment was $61B -- but that if you looked at reality, both $61B and $100B were laughably unserious. No matter. Folks around here pooh-poohed my criticism and insisted that a $61B pledge was a sober first step, showing real fortitude about getting our fiscal house in order.

So now they've stopped short, significantly short, of that purportedly serious step, and the reaction is, "We won!" You've got to be kidding me. The only thing Boehner won is future assurance that GOP leadership can safely promise the moon but then settle for crumbs because their rah-rah corner will spin any paltry accomplishment, no matter how empty it shows the promise to have been, as a tremendous victory.

And what's the rationale for settling? Why, that these numbers are so piddling -- that the $21 billion difference is so meaningless in the context of $14 trillion -- that it's best just to settle, make believe the promise was never made, make believe we didn't flinch, and put this episode behind us so we can begin the "real work" of the next promise, the Ryan Plan.

Regarding that plan, you're to believe that the captains courageous who caved on $21 billion -- and who got elected because of Obamacare but don't even want to discuss holding out for a cancellation of $105 billion in Obamacare funding -- are somehow going to fight to the death for $6 trillion in cuts. Right.

It strikes me that Boehner caved when he had -- as Hugh Hewitt describes it -- a "veto" on all spending. Won't the Democrats feel emboldened during the upcoming fights over the debt ceiling, the FY 2012 budget, and entitlement reform? Boehner eliminated a couple of days' worth of deficits, and got two symbolic votes in the Democrat-controlled Senate on Planned Parenthood and Obamacare. Why should the GOP base (much less the Tea Party) feel encouraged?

As an aside, I'm getting really sick of the "1/2 of 1/3 of the government" talking point. It's a weak excuse. Besides, the Judicial Branch isn't even involved in spending decisions whatsoever; Boehner actually runs 1/2 of 1/2 of the spending process.

John Boehner has said over and over again that the Republican House is only 1/2 of 1/3 of the government - even though, by the way, no spending or taxing bill can pass without the House, period. He has also said that the Republicans will not shut down the government. So tell me, what is his strategy going forward with the debt ceiling and the 2012 budget? If he is already saying House Republicans are too weak to do much, and that we are not going to shut down the government, what is his leverage when these big battles take place? I don't think the man has a strategy at all.

I wonder if Senator Brown's successor in the U.S. House, Betty Sutton, will take his advice and run on Obamacare, the GM bailout, the Chrysler bailout, the government takeover of the student loan industry, and the rest of the Democrat Party record? Or will she continue to flail around and dishonestly sling mud?

Click any of these memory-jogging graphics for more information on that Democrat record that Sherrod Brown's so proud of:

Two years ago, Betty Sutton jumped aboard that express train to socialism without much thought at all.

Betty may claim that she made her decision after careful consideration of the economic circumstances, but don't you believe her. She's an economic ignoramus who follows Nancy Pelosi's lead in lockstep, and that's all there is to it. There's no critical thinking involved.

Hi there, Congress. Hope you had a nice Independence Day. We Americans out here in Flyover Country sure did. We listened to readings of The Declaration of Independence, grilled burgers, drank frosty beverages, watched fireworks, played patriotic music, and generally reveled in the many blessings of liberty we've enjoyed since 1776.

Liberty. That's pretty important to us. We know you love the power and prestige that comes with being in Congress, and we don't really mind it too much when you start believing the flattery of the people following you around all day, osculating your posteriors. But something's been bugging us for a couple of years now, especially since January of '09.

Listen, about that bloated and ravenous federal government you've been injecting with steroids ...

... yeah, that's the one. Americans might once have thought that your plan to spend our way out of a crappy economy was worth a try. But now? Um, not so much:

The new survey found that just 29% believe last year's economic stimulus plan has helped the economy while 43% believe it hurt. Not surprisingly, there is little appetite for another round. By a 69% to 15% margin, voters believe tax cuts is a better way to create jobs rather than more government spending.

Ultimately, though, voters are looking to the private sector to create jobs. Sixty-five percent (65%) say that decisions made by business owners seeking to grow their business will do more to create jobs than decisions made by government officials. Just 23% expect the government officials to have a bigger impact.

The survey of 1,000 Likely Voters was conducted on July 1, 2010 by Rasmussen Reports. The margin of sampling error is +/- 3 percentage points with a 95% level of confidence.

Consider this a friendly reminder from your employers about your apparent lack of any sense of self-preservation. You might want to reconsider the wisdom of continuing down the same path you've been on. Just sayin'.

Come back and look at this whenever you hear happy talk from Democrats about the unemployment rate dropping. The reason the news reports have been talking about a "drop" in unemployment is because the rate they're talking about doesn't give the whole picture. It doesn't count people who've given up looking for work. The unemployment rate reported by the media (called "U3 Unemployment") went down because people left the work force.

I just submitted this question to my Democrat Congresswoman here in Ohio's 13th District, Betty Sutton: "If taxes go up next year (whether from the expiration of the Bush tax cuts, the enactment of new tax hikes, or both), will that help or hurt the economy?"

It just occurred to me that some of my readers may be unfamiliar with the concepts in my post on price ceilings. Supply and demand are basic concepts in economics, and although we all intuitively react to them in our daily lives, it's rarely a conscious thing. Public schools rarely teach economics, so I guess I shouldn't be surprised.

What would happen to the supply of gold if tomorrow morning the federal government declared it illegal to sell it for more than $500 an ounce? Every last bit would be snapped up by the close of business that day, and gold producers would shut down. Instant shortage. You can apply the same relentless cause-and-effect to other forms of price ceilings (that is, maximum prices set by law).

Rent control laws cause a drastic boost in demand for apartments and a drastic drop in the supply of landlords willing to rent apartments at painfully low rates ... which combine to cause shortages. Ask anybody in New York City how easy it is to find an apartment that you can afford that's also suitable for human habitation.

Remember the gasoline lines of the 1970s? Price ceilings enacted by the Nixon administration were to blame. Demand spiked while supply cratered.

Remember all of those rolling power blackouts in California in 2000? You guessed it. Price ceilings again, this time on retail electricity rates. The wholesale price of electricity was allowed to float freely, but the power companies weren't allowed to charge enough to recoup their expenses. They had to reduce the supply of power to avoid going bankrupt. After all, you can't stay in business by buying widgets for $10 and selling them for $5, could you?

Given this completely predictable pattern, how likely is it that President Obama's plan to impose price ceilings on health insurance premiums will "promote competition, transparency and better deals for consumers" as he predicts?

So this is a long-overdue victory for America's consumers and patients. And yes, it does away with the status quo that some insurance companies have taken advantage of for so long. But insurance companies should see this reform as an opportunity to improve care and increase competition. They shouldn't see it as an opportunity to enact unjustifiable rate increases that don't boost care and inflate their bottom line.

...

The point is that there are genuine cost-drivers that are not caused by insurance companies. But what is also true is we've got to make sure that this new law is not being used as an excuse to simply drive up costs. So what we do is make sure that the Affordable Care Act gives us new tools to promote competition, transparency and better deals for consumers. The CEOs here today need to know that they're going to be required to publicly justify unreasonable premium increases on your websites, as well as the law's new website -- healthcare.gov. As we set up the exchanges, we'll be watching closely, and we'll fully support states if they exercise their review authority to keep excessively expensive plans out of their insurance exchanges.

None of this is designed to deprive insurance companies of fair rates. And as I mentioned when we were meeting with the CEOs, there are a lot of cost-drivers other than those that are within insurance companies' control.

That sounds an awful lot like he wants to impose price controls. Since when do price ceilings ever succeed at anything but causing shortages of whatever product/service they're supposed to make "affordable?"

Last summer, the Obama Administration threw $50 billion of your tax money down the mortgage foreclosure rat hole. Yesterday came news of what happens when Washington showers another $75 billion on mortgage holders without even requiring evidence that they can pay it back. It's called the Homeowner Affordability and Stability Plan, and it's imploding:

The Obama administration's flagship effort to help people in danger of losing their homes is falling flat.

More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. That exceeds the number of people who have managed to have their loan payments reduced to help them keep their homes.

...

A major reason so many have fallen out of the program is the Obama administration initially pressured banks to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.

...

As more people leave the program, a new wave of foreclosures could occur. If that happens, it could weaken the housing market and hold back the broader economic recovery.

...

Credit ratings agency Fitch Ratings projects that about two-thirds of borrowers with permanent modifications under the Obama plan will default again within a year after getting their loans modified.

Apparently the brain trust in the White House just discovered that people without incomes tend to default on mortgages, even after the government restructures the terms. That's one heck of an expensive experiment.

How did we get here, and how does it affect Ohio's 13th District? We can thank our Democrat Congresswoman, Betty Sutton.

Congresswoman Sutton, why are the economies of Greece, Portugal, Italy, Ireland, and Spain in such bad shape? Should we draw any conclusions from those situations that apply to the economic policies you've supported in Congress?

Great news! President Obama wants another $50 billion bailout, this one for public sector unions.

President Obama is pressing Congress to approve emergency aid money to support economic recovery and help avoid widespread layoffs of public workers, the Washington Post reported Saturday.

Congressional leaders received a letter from the president asking for almost $50 billion for distribution to state and local governments, saying that increased spending is "urgent and unavoidable," the Post reported. The money would protect the jobs of teachers, police and firefighters.

"Because the urgency is high -- many school districts, cities and states are already being forced to make these layoffs," Obama wrote, "these provisions must be passed as quickly as possible."

Obama's plea comes despite last year's $787 billion economic stimulus package, which worked to stabilize the failing economy [Riiiiiight. -- Ed.], but did little to help the country's high unemployment rate. At 9.7 percent, unemployment is nearly the same as it was a year ago.

What could possibly go wrong? America's in the best of hands. Our Democrat Congresswoman here in Ohio's 13th District, Representative Betty Sutton, has been in charge since 2006. It's been rainbows and unicorns ever since.

Still, let's take a look back. Naturally, you completely forgot that $787 billion stimulus that Obama and Congress rammed through last year, didn't you? It was a spending orgy that was supposed to "create or save" gazillions of jobs. Remember that? It's the brilliant job-creating scheme that didn't actually, um, work. Who could've seen that one coming? Total shocker.

Here in Ohio, unemployment is much worse than the national average ... but that's not all. There's still $381 billion of that money lying around unspent, collecting dust in Washington. Why do you suppose Congress isn't redirecting that money to this new "emergency" instead of extracting another $50 billion from your pocket?

This new plea for another "emergency" bailout demonstrates (again) that there's no reason to trust the Democrats when they talk about fiscal responsibility. They're as trustworthy as a drug addict squeezing his relatives for money: "This is the last time I'll ask. I promise. I'll check myself into rehab, first thing tomorrow, but just this once I've gotta have this fix. It's an emergency and I'll die without it. Pinky swear!" If you think this is a one time deal, then there's some lovely oceanfront property in Death Valley that's got your name on it.

Congress lives in a strange alternate universe where your money is their money. When the economy's booming, the Congressional Fantasyland response is to "invest in America" by taxing The Rich™ (people who create wealth and hire you) because they're easy targets for class warfare rhetoric and the politics of envy. When the economy's crashing, the Congressional Fantasyland response is to suck more money into Washington so they can spread it around.

Hey, wait a second. Where have we heard that idea before?

It should come as no surprise that Betty Sutton, a big fan of Barack Obama, has the same strategy for healing all that ails us.

Now here's the kicker. Not only does Betty Sutton genuinely believe that the Underpants Gnomes are worth imitating, she personally benefits from Obama's new "emergency" $50 billion bailout of public sector unions.

When I read Daniel Klein's WSJ piece on the state of basic economic knowledge among American adults, I had to wonder how anyone could be surprised by his findings.

Who is better informed about the policy choices facing the country -- liberals, conservatives or libertarians? According to a Zogby International survey that I write about in the May issue of Econ Journal Watch, the answer is unequivocal: The left flunks Econ 101.

Zogby researcher Zeljka Buturovic and I considered the 4,835 respondents' (all American adults) answers to eight survey questions about basic economics. We also asked the respondents about their political leanings: progressive/very liberal; liberal; moderate; conservative; very conservative; and libertarian.

Rather than focusing on whether respondents answered a question correctly, we instead looked at whether they answered incorrectly. A response was counted as incorrect only if it was flatly unenlightened.

...

Americans in the first three categories do reasonably well. But the left has trouble squaring economic thinking with their political psychology, morals and aesthetics.

U.S. Census data on automobile sales offer yet more proof that Betty Sutton's biggest "achievement" was nothing but a clunker.

Just like every other Keynesian stimulus program, Cash for Clunkers relied on the delusional idea that government can create new wealth by destroying old wealth:

It destroys wealth by not letting these cars be used up over their useful life. It destroys wealth by routing scarce resources into activities - in this case, car building - that wouldn't otherwise take place, denying other industries access to those resources. It destroys wealth by taking on liabilities, through borrowing, that have to be paid back later by taxpayers (reducing their purchasing power in the future) or by taxing them immediately (reducing their purchasing power today).

...

These people traded in a car they've been likely to drive less. We can safely assume these cars didn't get as good gas mileage or were older, "clunkers", because they were targeted for these reasons. These cars also may not have been driven at all, or driven rarely. However, they've been used to help people get a vehicle that they're now more likely to drive more frequently!!! More driving means more emissions, even if the emission per unit of travel is less. More driving means more fuel consumption, even if the fuel consumption per unit of travel is less.

Betty Sutton's a labor lawyer and a career politician. All she's ever done is spend money to pander to big union bosses, radical environmentalists, and every other nutty leftist special interest in existence. She knows absolutely nothing about the free market, nothing about creating capital and jobs, and nothing about the real world consequences of her actions. Nobody should be surprised that her hare-brained ideas have wrecked the economy and burdened our children with mountains of debt.

Re-electing her and expecting anything different makes as much sense as giving an alcoholic a bottle of whiskey and the keys to your car. This shambling monstrosity is her baby. No wonder she didn't abort it.

Courtesy of the St Louis Federal Reserve Bank, here are three graphs that illustrate just how awful our economy has been since the Democrats took over Congress in 2006 and the Presidency in 2008 (click for full size):

As of last Friday, The International Monetary Fund now forecasts that the American national debt will reach 100% of our Gross Domestic Product within five years. This chart comes from that very long IMF report, and displays the problem clearly:

The left side of the chart shows U.S. debt as a percentage of GDP. The bottom of the chart shows the year.

Notice where the debt zooms upward? That's 2006. As I recall, that's when the Democrat Party took over the U.S. Congress. All federal spending bills originate in the U.S. House of Representatives. Come to think of it, 2006 was the year that a certain someone got elected to the U.S. House from Ohio's 13th District.

If she actually wanted to ruin our economy and turn us into a basket case like Greece, how would Betty Sutton's voting record be any different? She's either trying to destroy American free enterprise, or she's hopelessly ignorant of basic fiscal sanity.

Someone on Her Royal Highness' staff should Google "The First Rule of Holes" and do a finger painting explaining the concept to the boss.

The hard-working folks over at Recovery.gov, ever on guard for that rare instance of government inefficiency that occurs only once in a decade or so, have responded with commendable speed to newsreports of erroneous/incompetent/fraudulent data in the records of stimulus money spent to save (or "create" jobs). No longer does their database report on taxpayer funds wasted invested in places like the nonexistent 99th U.S. Congressional District of Puerto Rico. No, sir. Everything's been scrubbed squeaky clean, and the original records now show each offending transaction taking place in an "unassigned congressional district."

What's that you say? You want to know what the original data showed? Oh, c'mon. You can trust faceless, nameless bureaucrats in Washington to behave with the most scrupulous ethical standards. They're from the government, and they're here to help you.

Pardon me? You still don't trust them? You must be one of those bitter people clinging to their Bibles and their guns out in the sticks. Besides, it's too late now. The original data's gone. Unless you know someone who scooped up some of the data before it was alterederased corrected, you're out of luck.

Hey, wait a second. Guess who snagged the original data for Ohio, put it in Excel spreadsheet format, and sorted it all by district?

But examining the components of GDP reveals a more disturbing picture. While consumption, exports, and the government sector were up, private investment has fallen through the floor.

...

The third quarter GDP numbers show that the economy is only starting to "recover" because of growing government and expanding consumption, which has been artificially inflated by large government transfers.

Business investment continues to be in a deep recession. Companies are simply not building factories or buying new machines and equipment.

Why not? I suspect that many firms are scared to death of higher taxes, inflation, health care mandates, increased labor regulation, and other profit-killers coming down the road from Washington. That is speculation, but I haven't heard a better explanation of the death of private investment in America.

The freefall began in 2006. What was significant about that year? It marked the beginning of what Bizzyblog proprietor Tom Blumer calls the POR (Pelosi-Obama-Reid) economy.

Have you wondered why SEIU and the rest of Obama's union thug buddies have been pushing the House's version of Obamacare so avidly? Thanks to Warner Todd Huston's and Ed Morrissey's digging, I've cut and pasted Section 164 for you to examine. Take a look at this $10 billion payoff (look at the red text on the second page):

Those are your tax dollars being shoveled into the pockets of union bosses. You can thank people like Rep. Betty Sutton (D-OH) for slipping this fat bribe to the unions that have been ruining American productivity for decades. She was intimately involved in drafting this bill, and you can bet your last wrinkled dollar that her union friends will repay her richly with kickbackscampaign contributions.

Apparently, Betty's $3 billion Cash-For-Clunkers pet project wasn't enough. The previous multibillion-dollar bailouts of GM and Chrysler (with the unions getting great gobs of common stock) weren't enough. The minimum wage increase (which boosts union members' pay, according to their contracts) wasn't enough. Even this $10 billion payoff isn't enough. It's just another in a long line of juicy sops thrown to the labor lobby. Before long, she'll resume her push for card check and its stacked-deck-arbitration companion.

How long will Ohio voters in the 13th District tolerate this legalized corruption? How high must unemployment go? How many tax hikes will we tolerate?

In this letter you told Nancy Pelosi that you couldn't support the Obamacare bill if it wasn't budget neutral. Yet you violated your commitment and voted for the bill on Friday, July 31st. Obamacare is anything but budget-neutral. It obliterates the budget.

Douglas Elmendorf, director of the nonpartisan Congressional Budget Office, said bills crafted by House leaders and the Senate health committee do not propose "the sort of fundamental changes" necessary to rein in the skyrocketing cost of government health programs, particularly Medicare. On the contrary, Elmendorf said, the measures would pile on an expensive new program to cover the uninsured

I've called and e-mailed my Congresswoman's very polite and helpful staff several times a week for a month, and so far there's still no schedule for Betty Sutton's activities during the House's August recess. I wonder why she's leaving her staff and constituents twisting in the wind?

I'm shocked. Shocked, I tell you. Who could have predicted this failure?

The Obama administration's $50 billion program to curb foreclosures isn't working, and the White House knows it.

Administration officials blame the mortgage servicers charged with carrying out the mortgage modifications and refinancing under the federal program. Many of their Democratic allies on Capitol Hill back them up, but others are criticizing the White House for fumbling the execution. Whatever the reason, the program hasn't stopped the rising tide of foreclosures: Experts predict that at least another 2 million homes will be lost this year, and the administration's plan has so far reached only about 160,000 of the 3 million to 4 million homes it was supposed to protect over the next three years.

That's bad news for the economy -- and bad news for the Democrats.

Golly, you mean throwing money we don't have at an economic problem caused by reckless government lending regulations ... isn't actually fixing the problem? We're just digging ourselves deeper into the debt hole and insisting on more stupid lending? Hmmm. What to do, what to do?

Wait, I've got it! Let's throw even more money at the problem! Universal home ownership! Single payer mortgage care!

At the Austin, TX Tea Party on this past July 4th, Republican U.S. Senator John Cornyn got a resounding round of boos (except when he talked about our military) for his vote on TARP, the bloated bailout:

Notice how he tried to slam "Washington" as if he isn't part of it. Remember this back in April?

The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

For the current recession, employment peaked in December 2007, and this recession was a slow starter (in terms of job losses and declines in GDP).

However job losses have really picked up over the last 9 months (4.4 million jobs lost, red line cliff diving on the graph), and the current recession is now the 2nd worst recession since WWII in percentage terms - and also in terms of the unemployment rate (only early '80s recession was worse).

When you tax something, you get less of it. Ohio's taxes are higher than Georgia's. Guess where erstwhile Dayton-based company NCR is taking its 1,300 jobs?

Keep this in mind the next time a tax-and-spend progressive like Jon Husted, Lee Fisher, or Ted Strickland asks for your vote. The longer Ohio voters keep progressives in office, the faster Ohio's economy will circle the drain.

What a shock. Tax revenue is dropping during a recession. If (just for the sake of argument) we assume that maintaining that pre-recession level of tax revenue is a Good Thing™, what should the federal government do?

On Obama's inauguration day the Dow Jones Industrial Average closed at 9625.2803, and since then it has dropped to 6594.4399 as of yesterday. That's a drop of 3030.8404, which works out to an average drop of 25.0483 per day. At this rate, the Dow will hit zero on November 23rd.

To mark the impending passage of the stimulus packageThe Generational Theft Act of 2009, I wrote a parody for any good Barack Obama impersonator to sing (with backup vocals by Nancy Pelosi, Harry Reid, and Barney Frank).

In the brand new country we're gonna remake
Nobody has a job, cuz they're all on the take, welfare
Uh welfare

Well running your life is our full time job
We know what's best for you, you're just a helpless slob, welfare
Uh welfare, welfare, sign right there, baby yeah
Uh welfare, welfare, sign right there, baby

Yeah
Uh welfare

We got four short years to spread all of your wealth
This truckload of cash won't spend itself
Here in D.C. we're on a tear
Say what the hell, say what the hell, welfare
Welfare, welfare, welfare, sign right there, baby
Welfare, welfare, welfare, welfare
Welfare, welfare, sign right there baby

Cough up a trillion dollars for us to burn
Then re-elect us cuz you never learn, welfare
Uh welfare, welfare, sign right there baby
Uh welfare, welfare, sign right there
Welfare welfare welfare welfare
Sign right there
Sign right there

Read the following text buried in the House version of the Generational Theft Act of 2009 (emphasis mine):

EMERGENCY FUND. -- ''(1) ESTABLISHMENT. -- There is established in the Treasury of the United States a fund which shall be known as the 'Emergency Contingency Fund for State Temporary Assistance for Needy Families Programs' (in this subsection referred to as the 'Emergency Fund'). ''(2) DEPOSITS INTO FUND.--Out of any money in the Treasury of the United States not otherwise appropriated, there are appropriated such sums as are necessary for payment to the Emergency Fund.

That's a blatant return to unlimited direct welfare payments. Remember those? A Republican Congress cut off those hand-outs in 1996 with Bill Clinton's approval years ago, but Barack Obama and Nancy Pelosi want to go back to the bad old days of welfare queens.

'(1) ESTABLISHMENT.--There is established in the Treasury of the United States a fund which shall be known as the 'Emergency Contingency Fund for State Temporary Assistance for Needy Families Programs' (in this subsection referred to as the 'Emergency Fund'). ''(2) DEPOSITS INTO FUND.-- ''(A) IN GENERAL.--Out of any money in the Treasury of the United States not otherwise appropriated, there are appropriated for fiscal year 2009, $3,000,000,000 for payment to the Emergency Fund.

It's a sad day when three billion dollars in welfare payments sounds less insane than the alternative, but here we are. Any bets on what dollar figure will result from the conference committee in which the House and Senate reconcile the differences in their bills and go for final passage?

President Barack Obama issued a withering critique Thursday of Wall Street corporate behavior, calling it "the height of irresponsibility" for Wall Street employees to be paid more than $18 billion in bonuses last year while their financial sector was crumbling.

"It is shameful," Obama said from the Oval Office. "And part of what we're going to need is for the folks on Wall Street who are asking for help to show some restraint, and show some discipline, and show some sense of responsibility."

If I've got this "new Obama math" right, paying out $18 billion in executive bonuses is the height of irresponsibility, but spending $1.2 trillion in government pork is a fiscally justifiable use of taxpayer funds.

Am I on track, Mr. President?

Hmmm. Big numbers are hard to grasp. Maybe if I represented each $1,000,000,000 with a fat little pig, I'd be able to get a better handle on things. Yes, that sounds good.

An unknown wit once said: "A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury." When it comes to voting ourselves goodies from the treasury, we Americans stand near the point of no return.

I've addressed this lopsided situation before in a post on war funding, but this is a much more general discussion.

The federal government levies taxes on some of us, and it sends handouts to some of us. Some Americans pay more in taxes than they receive in handouts. I'll call them "givers." Others receive more in handouts than they pay in taxes. I'll call them "takers."

The Tax Foundation studied taxes and handouts from 1994-2004 (see the FAQ), and came to some startling conclusions. Below you'll see a diagram of their 2004 breakdown of dollars received in handouts per dollar taken in taxes. Pay special attention to the blue bars (the total handouts per dollar of taxes). Look at the bottom 3/5ths of our population. Those groups get more in handouts than they pay in taxes; they're the takers. The top 2/5ths are paying more in taxes than they get in handouts; they're the givers.

Since the American form of government (thankfully a representative republic, not a democracy) responds fairly quickly to the will of American voters, we have the ability to force our elected representatives to give us tax dollars as handouts. If our representatives refuse our demands for goodies, a majority of us can replace them with more pliable politicians.

So what happens when the takers outnumber the givers at the polls on Election Day? We hit the "tax tipping point." Since everyone gets one vote (unless ACORN is involved) regardless of their tax-to-handout ratio, the takers force the government to soak the givers. Eventually, the givers get tired of being punished for their success. The result is predictable:

Calculating how far society's top earners can be pushed before they stop (or cut back on) producing is difficult. But the incentives are easy to see. Voters who benefit from government programs will push for higher tax rates on higher earners -- at least until those who power the economy and create jobs and wealth stop working, stop investing, or move out of the country.

...

The sequence is always the same. High-tax, big-spending policies force the economy to lose momentum. Then growth in government spending outstrips revenues. Fiscal and trade deficits soar. Public debt, excessive taxation and unemployment follow. The central bank tries to solve the problem by printing money. International competitiveness is lost and the currency depreciates. The system stagnates. And then a frightened electorate returns conservatives to power.

Barack Obama claims he'll give a "tax cut" to 95% of Americans (for the sake of argument, let's ignore the impossibility of doing that while also paying for his massive expansion in government spending). His magic "tax cut" for those who pay no income taxes is really a tax credit. That's a handout to the takers, funded by higher taxes on the givers. The chart above will get more lopsided, with the blue bars on the right shrinking and the blue bars on the left growing.

America cannot keep confiscating more and more money from the givers and sending it to the takers. There's no such thing as a free lunch. If you're one of the givers creating jobs and capital, you'll only tolerate punishment for so long before you take rational steps to reduce your vulnerability. You'll start shifting your capital away from productive uses and into tax shelters dictated by loopholes in the law. You'll cut costs by hiring fewer employees or getting rid of current employees. You might even decide to escape the punishment of the takers by closing down your business or moving it overseas to a country with friendlier tax policies.

Now multiply this scenario to include all of America's private sector, and you'll start to understand the inevitable result of a tax-and-spend policy like Barack Obama's. He believes he can tax and spend his way to prosperity, but he can't (or won't) see that he'll push our economy over the tax tipping point and into either a severe recession or an actual depression. Our current economic downturn is already worsening as Obama's victory grows more probable, and one hundred top economists recently warned of the impending disaster of Obamanomics.

Barack Obama is more than Jimmy Carter on steroids. He's about to repeat Herbert Hoover's tragically foolish response to an economic downturn. If Obama wins this election, he will drive us into a Second Great Depression.

Imagine that the Federal Whatchamacallit Administration (FWA) has a current budget of $100 billion for 2006, and the Bush administration requests $120 billion for 2007.

Now imagine that the happy little piglets on the House Appropriations Committee draft their 2007 budget with another $30 billion in the FWA authorization bill ... the better to fund several Congressmen's pet projects. Pretty straightforward so far, and sadly very predictable:

Now let's say that the full House of Representatives, backed by the Bush Administration, objects to the pork. They change the FWA's 2007 budget back to $120 billion, which looks like this:

Naturally, if you're a tax-and-spend Washington politician and you hate being told "no", you immediately call a press conference to denounce the horrible "cut" in the FWA budget.

But wait! How can it be a "cut" if the budget went up? It's a common scare tactic that comes from a system called "baseline budgeting", and it's a deceptively easy way to scare uninformed voters into supporting the tax-and-spend piglets in expensive suits.

The Congressional Budget Office defines the baseline as a benchmark for measuring the budgetary effects of proposed changes in federal revenue or spending, with the assumption that current budgetary policies or current services are continued without change. The baseline includes automatic adjustments for inflation and anticipated increases in program participation. Baseline, or current services, budgeting, therefore builds automatic, future spending increases into Congress's budgetary forecasts.

Baseline budgeting tilts the budget process in favor of increased spending and taxes. For example, if an agency's budget is projected to grow by $100 million, but only grows by $75 million, according to baseline budgeting, that agency sustained a $25 million cut. That is analogous to a person who expects to gain 100 pounds only gaining 75 pounds, and taking credit for losing 25 pounds. The federal government is the only place this absurd logic is employed.

You can also sometimes see the flip side of this silliness in action when politicians try to paint themselves as budget-cutters, while actually spending more. You've heard of stores that fool consumers by artificially raising prices just before a "deep discount sale", right? Politicians pull the same trick regularly.

WOMAN: Senator Obama, you say that punitive taxes on oil companies will solve our energy problems. But economists say windfall taxes will only raise the price of gasoline. You say you're against offshore drilling. But experts say we need to maximize oil supply while we develop alternative energy. Senator, you are running for President, not us. Why do we need to explain this to you?

ANNOUNCER: What happens when we elect a Senator who doesn’t understand supply and demand? Please, America, let's never find out.

On energy the choice couldn’t be more clear. Here’s Barack Obama:

On one side we have a liberal who is beholden to the environmentalist lobby. He would rather we keep sending our cash to the Middle East rather than keep it here. And on the other side we have an
bonafide energy expert, Sarah Palin, who has successfully managed Alaska’s natural resources (at least in the areas where the Federal government so graciously allows Alaskans to use their own land)

Kudlow: How long would it take? How long would it take? I hear so many, Senator Obama says this, and a lot of Democrats say this, some Republicans, how long will it take Governor? What's your estimate on this? To start lifting out of ANWR?

Palin: It's going to take at least five years. You know, and there are other areas in Alaska too, that have the reserves that need to be tapped, certainly offshore. There's trillions of cubic feet of natural gas, and billions of barrels of oil there too that need to be tapped. We also have a natural gas pipeline that is underway now, a process to get that constructed, where we can build infrastructure and allow known reserves of natural gas up on our North Slope - it's already there, it's already proven - to be tapped and flow through a natural gas pipeline. Our legislature is dealing with that issue right now, getting ready to license a company to build that gas line. Again, to feed these hungry markets.

and more of Sarah Palin doing her thing here:

If you are at all concerned that energy costs might skyrocket out of control again, or about the fact that we are trading billions of dollars to the Middle East where it distorts the influence of those countries on us and our foreign policy, then you vote McCain/Palin

Obama’s energy policy: solar, electric cars and miracle fuels (Same Stuff Jimmy Carter did to no avail), campaign conversions on coal and a very late campaign “conversion” on offshore drilling.

Note: This is the first of what will be 13 posts on why Barack Obama is a dangerous, objectionable, and objectively unfit candidate to be president of the United States (while many of the other candidates are not).

WOMAN: Senator Obama, the papers say that you are benefiting politically from the financial crisis.

MAN: But if America knew the facts, I don't know how they could vote for you.

WOMAN: John McCain tried to blow the whistle on Fannie Mae and Freddie Mac over two years ago. In 2006, he told the Senate, "For years, I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac.... The GSEs (government-sponsored enterprises) need to be reformed without delay."

MAN: No wonder he didn't get their political contributions. And who opposed the reforms John McCain was calling for? Barack Obama, Christopher Dodd, and John Kerry.

GSE executive management was heavily populated by Democrats who had been in government service (e.g., Franklin Raines, who is, incredibly, a current Obama adviser). Managements at both companies cooked the books and let accounting chaos reign. Both companies paid out wildly excessive bonuses based on fictitious earnings.

Attempts like McCain’s to reform the two GSEs were met with cries of “racism” by Democrats in Congress who thought lending money to people who had a high likelihood of not paying it back, thereby ruining their credit, was a good idea.

The high default rates on loans purchased by the two GSEs led both companies into receivership, and shook the mortgage lending industry to its foundations, and lead to the most serious declines in real estate values in generations.

The collapses at the two GSEs created contributed to problems that were so far-reaching that the government felt compelled to formulate a “bailout” plan that could very cost future generations hundreds of billions of dollars.

The financial-sector problems that can be laid at the feet of the GSEs are negatively affecting the rest of the economy. After 6 years of virtually uninterrupted growth, a recession could occur.

Barack Obama’s role in all of this was one of contributing to the problem as a young lawyer/”activist” (suing a banking giant to intimidate it into making irresponsible loans), and failure to act to prevent the GSE train wreck while a US senator.

This is not “Judgment to Lead.” Electing someone so beholden to so many who are so corrupt is more like a recipe for calamity.

The playlist below contains the full video "Obama & Friends - History Of Radicalism", aired just this past weekend on Hannity's America. As each segment ends, the next one should start automatically. If there's a hitch between segments, just click the big arrow that will appear at the right side of the box and you'll manually fast forward to the next segment.

Barack Obama's defenders accuse arguments like this one of irrelevance or unfairness. Assigning guilt by association can certainly be unfair to someone with an unsavory friend or two, especially if the target of the accusation clearly doesn't share the lowlife's beliefs or actions. Every nationally-known politician has a lot of friends and associates, so it stands to reason that some of those people will be less than stellar examples of moral uprightness. The law of averages plays a part in the makeup of any large group of people.

But some politicians surround themselves with crowds of bad people. Consider Richard Nixon, the former Republican President who resigned in disgrace to avoid impeachment. He selected the advisors and political operatives who helped him climb the political ladder all the way to the top. These surrogates were masters of dirty politics, who committed the Watergate break-in that brought down Nixon's administration.

When Nixon uttered his famous "I am not a crook" line, nobody took him seriously. While he didn't personally break into the Democratic Party offices at the Watergate Hotel, he surrounded himself with the crooks and scumbags who did. He knew exactly how immoral and un-American his friends and associates were, so he delegated the dirty tricks to them. He hoped to keep his own hands clean by claiming he had nothing to do with a few overzealous bad apples, but Washington Post journalists Woodward and Bernstein exposed the truth: Nixon's friends and associates were a barrel full of bad apples.

There were far too many shady characters around him for Nixon to claim it was all happenstance. Either he was incredibly naive and stupid when it came to his executive responsibility to select and lead his subordinates, or he craved the power of the presidency so much that he would do anything to maintain it. Either way, Nixon was unfit to remain in office.

A president's character is reflected by the character of his friends and associates. Keep that in mind as you watch the video above. What does the character of Barack Obama's friends and associates say about his character?

Obama took hush money from the people who crippled the home mortgage market through fraud, and he did nothing to regulate them. His friends enriched themselves while running Freddie Mac and Fannie Mae into the ground, and as a result we're now stuck with that obscene $800+ billion dollar taxpayer-funded bailout bill. Worse still, three of Fannie Mae's wealthy scammers advise Obama on everything from running mate selection to the details of housing policy.

That's right; Obama seeks critical economic and political advice from the very people who ruined the mortgage market and caused the current financial crisis.

Why in the world would anyone trust Barack Obama to fix this financial mess, when he and his friends are the ones who caused this economic crisis in the first place?

If you want a ten-minute primer on how this mess happened, here you go:

If you've asked yourself "What caused the bank crisis?" or "Who is responsible for this financial mess?" ... here's the answer.

This is a prime example of what happens when Barack Obama's core beliefs are enacted as economic policy. In the name of "affordable housing for all", Washington liberals ruined the mortgage market with foolish regulations, caused countless home foreclosures, and stuffed their own pockets with money in the process.

Just thought I'd send some thoughts from small-business America. My husband's business is a canary in the coalmine. When tax policies are favorable to business, he hires more guys, buys more goods, etc. When he is taxed more heavily, he fires people, doesn't buy anything new, etc. Well, duh. So, at the mere thought of a President Obama, he has paid off his debt, canceled new spending, and jotted a list of whom to "let go."

The first of the guys will get the news tomorrow. And these are not minimum-wage earners. These are "rich" guys, making between $200,000 and $250,000 a year.

My husband will make sure that we're okay, money-wise, but he won't give himself a paycheck that will just be sent to Washington. He'll make sure that he's not in "rich guy" tax territory. So, he will not spend his money, not show a profit, and scale his workforce down to the bare minimum.

Multiply this scenario across the country and you'll see the Obama effect: unemployment, recession, etc. No business owner will vote for this man, but many a "middle-class worker" will vote himself out of a job. Sad the Republican can't articulate this.

Very sad. Don't be surprised if things get worse, thanks to ignorance about capitalism versus socialism.

In one of the broadest and most authoritative studies to date, the Commodity Futures Trading Commission has offered hard statistical data that financial trading hasn't been driving price moves. The CFTC conducted an unprecedented Wall Street data sweep and scrutinized millions of transactions worth billions of dollars between January and June of this year.

Lo and behold, the CFTC found that index traders and swap dealers actually reduced their stake in crude oil futures as prices spiked. The number of contracts held by these investors betting that prices would increase -- the net long position -- fell by 11%, and more were shorting oil than going long over the six-month period. In other words, index traders and swap dealers were driving the future price of oil down.

Supply and demand, folks. Geez, we need competent economics education in this country.

Is it just me, or are the Congress and the President doing the usual two-step "we must be seen to be doing something about a recession because it is an election year" dance when it comes to "stimulus?" Think about it. As proposed, what would the stimulus really accomplish? We give individuals $600.00 ($1,200.00 to families or couples) to spend as they wish. It will cost approximately $150 Billion dollars. WHY?!?!? From what I have read, people are usually going to do one of two things with their checks, either pay off their credit cards (no new jobs) or go to Wal-Mart and spend it (most of the money going to China). If we are determined to put ourselves in debt that much more (and I personally don't think we should) why don't we address it differently?

If you want to truly stimulate the economy, do something that will help people long-term. This country is beginning to have major infrastructure problems. Why not propose it as a comprehensive Infrastructure Refurbishment Bill instead. Think of how many construction workers and American businesses would be hired with this amount of money? American Steel used to rebuild bridges. American families reaping the benefits of new jobs. All of the money would go into stimulus, and it would stay in the USA.

If you want relief for all Americans, then release 15% of the Strategic Petroleum Reserve over the course of a year to stabilize (reduce the price) of the oil markets. 15% is equal to 104 million barrels of oil (the current reserve level is at 697.5 million barrels). This would result in lower gasoline costs, lower heating oil costs, lower jet-fuel costs, etc. It would probably knock the price of oil back down into the $50-$60 range, which would translate to a savings of approximately $0.50 per gallon of gasoline for each consumer. Considering each family on average uses 15 gallons of gas a week (conservatively), this translates to a savings of nearly $400.00 per year per family, and jump starts the transportation industries (airlines, shipping, etc) by boosting their profits and allowing them to afford to create new jobs. It's not like we're draining the reserve, it will still be at a higher level than it was in 2001 (when it held 545 million barrels).

I hit the argument for Tax Cuts pretty hard when I wrote about it here. However, I did not mention one of the classic problems with the Supply Side Economic model when I addressed it. When the government fails to take in enough revenue to cover expenses, it creates a deficit. This is economics 101. When this occurs long enough over time, it causes inflationary conditions to develop, and it devalues the currency against the world market. Let's start this part of the discussion with the cost of oil.

Is it just me, or is it odd that the price of oil has spiked from $28.00 a barrel in 2001 to $88.49 in 2007? How about the fact that the 50 year trend in oil pricing prior to 2001 saw the median for oil at less than $24.00 per barrel with the exception of times when conflicts around the Middle East were occurring, yet it is projected to potentially go as high as $110.00 a barrel within the next year? You can find an analysis of the past 100 years worth of oil sales and figures here. The most common justifications that has been given for the increase in oil price are that a)more countries are consuming it (i.e. China and India), b) the market is just catching up for 30 years worth of inflation, and that the cost of oil is really low considering what was paid for it in 1980 and c) the weak US dollar is driving oil prices up, which means that the commodity in the world market is right where it is supposed to be.

Sorry, not buying it.

Can you honestly tell me that the chairmen of two oil companies, who just happen to be occupying the #1 and #2 political positions in this country, had absolutely no control whatsoever over the 300% increase in crude oil pricing over a 6 year period? Oil prices (and the corollary, gasoline prices) affect just about every aspect of the economy. The cost of gas is figured into everything from freight bills to school district budgets. Oil prices directly affect electricity and heating costs. Anyone paid any attention to the cost of milk recently? At the local grocery store, it will cost you approximately $3.50 for a gallon of milk. Contrast that with $1.40 in 2003. Why the rise? Increased costs for everything from cow feed to trucking to send the milk to market.

My point is that there are already inflationary storm clouds starting to form on the horizon. Do we really want to return to the economic model of the late 1970s, with 16% interest for a home mortgage and double-digit inflation? So how could the Bush administration prevent this from occurring? Simple. The National Strategic Oil Reserve currently holds 690 Million barrels of oil out of a possible 720 Million. In other words, it is currently holding over 95% of its capacity, which also happens to be the most it has ever held in history. OPEC affects the price of oil by setting price controls and then turning the tap on or off as appropriate to get oil to the level they want. Let's take a page out of their book. If the President was to release 15% of the existing reserve (100 Million barrels) in a controlled manner over the next year to two years, it would probably have a huge dampening effect on the market, bringing the cost of oil back down to around $50 a barrel (if not lower). The argument could be made that this is a garden hose next to the OPEC fire hose. It doesn't matter. The economic principles that drive the oil commodity market are keeping it artificially inflated. All it takes is puncturing the balloon for the prices to reset to where they should be. Will this administration even consider it? Probably not, because it is not in their political interests.

Let's talk about the free-falling dollar against world economies. In February 2001, then Treasury Secretary O'Neill made the statement that "We are not pursuing, as often said, a policy of a strong dollar. In my opinion, a strong dollar is the result of a strong economy." Federal Reserve Chairman Bernanke, when asked about it recently, made it clear that it is the role of the Department of the Treasury, and not the Fed, to control international currency valuation policy. Since 2001, this administration has given lip-service to supporting a "strong dollar," but always with the caveat that market conditions would set the price. In other words, where the dollar falls is where the dollar falls. This is the first time in history that the US has not used the Department of Treasury to ensure a strong dollar.

So where has it fallen? Let's look at the Euro for a price comparison. In February 2002, $0.87 bought €1.00. If you wanted to buy a new BMW from the factory in Bavaria that cost €50,000.00 it would set you back $43,500.00. In today's world, the Euro just closed at an all time high against the dollar, where it costs $1.43 to buy €1.00. That same BMW at today's conversion...$71,500.00. Pick a different currency? The Canadian Loonie reached parity with the US Dollar for the first time in over 30 years this month. In February 2002 $0.66 bought $1.00 of our northern Strange Brew cousin's money (Cool, eh'). What does this mean for America? In the short term, it means that the US gets to act like a kid in the candy store. Our goods cost less in other countries, which means we sell more. Other countries goods cost more, which means we buy less. Our trade deficit lowers and American manufacturing makes a comeback. Everybody sings Kumbaya.

Not so fast.

Remember oil? We buy it from other countries. A lot of it. We also happen to buy a lot of other products we use in our day to day lives from foreign countries. Most of our fruit and produce this time of year comes from South and Central America. Electronics from Japan, China and South Korea. You get the picture, there is a reason it is called the "Global Economy." In the long term, a devalued US dollar can cause long-term double digit inflation. There is no such thing as a free lunch. It is a lot like one of the scams you see advertised on TV. A company offers to give you a large lump sum as long as you sign away your monthly pension to them. They'll give you $100,000.00 right now, as long as you give them your retirement check of a paltry $800.00 a month. Of course, this means that at the end of 10 years, they'll continue to collect your pension for the rest of your life, a long time after you've spent the $100,000.00. If the math is confusing you, in 10 years at $800.00 a month, you would have earned $96,000.00 not including any compounding interest. For a short term gain, in the end you get royally screwed. In other words, the Bush administration has utilized a sledgehammer to attempt to dictate fine economic policy. And just like hitting a stained glass window with a sledgehammer, it's hard to put the pieces back once you're done.

As my co-blogger PuddlePirate wrote yesterday, he and I got into something of a spat over the presidency of George W. Bush. My position is that, in the past 7 years with him as president, he has done more damage to this great nation of ours than just about any other person in history.

Needless to say, my good friend the PuddlePirate turned beet red with rage and demanded to know how I could possibly justify a statement like that. It all went down hill from there.

He has put together a very nice argument for tax cuts and why supply-side economics are just what the country ordered. You can find that here. The problem with this, in my opinion, is that it is disingenuous and misses the point of my argument. Let me start by making a very broad disclaimer - I am not, nor do I pretend to be, an economist. Having said that, I trust the words of the economists who should be setting policy.

The justification for the 1.35 Trillion (yes, that is Trillion with a T) tax cut package that Bush passed through congress in the first part of his presidency was that the country was projecting 10 Trillion dollars in budget surpluses over the next decade. The goal was to spur the economy, create new jobs, and replace the tax revenues through growth. In this package, it accomplished some very good things, most namely eliminating the "marriage penalty" (i.e. two people with income would be better off not getting married due to higher taxes). It also increased the tax credit to lower income people with children (not that I am against this, but it smacks a little bit of a "buy your vote" kind of deal). The bottom line is that of the 1.35 Trillion dollars in tax cuts, according to the IRS's own statistics, approximately 70% is going to the top 0.5% of society (those individuals making over $1,000,000.00 in reportable income). The last time I checked, the last year the country had a budget surplus was 2001. It also just about completely failed in its stated purposes (create jobs), since approximately 5,000,000 jobs were lost between when it was passed in 2001 and 2004.

The argument has been made that the idea behind the tax cuts bears out, since tax revenues are up. This is, again, disingenuous. The reason tax revenues are up is that the top 0.1% (those making over $1.6M per year) account for over 10% of the nation's income and 19% of the taxes. Contrast this with 1979 when the top 0.1% accounted for 3% of the nation's income and 7% of the taxes. When income in this group goes up, tax revenues go up a lot faster than if income rose evenly across all tax brackets. This is borne out by the fact that, while income tax revenues are up significantly, Social Security and Medicare tax receipts have remained flat (indicating that the average wage earner's salary has not been rising, nor have there been additions to the average wage earner's numbers). In other words, the rich have gotten richer while the average person has stagnated. Where did this money come from? A large chunk came from Capital Gains taxes. Where did the capital gains taxes come from? Unfortunately, a very large chunk came from investments in foreign markets, where the returns have been up significantly due to the falling dollar (I don't even want to get started on that presidential economic fiasco). Think about that for a second, our tax revenues are up because the top 1% of the population has been investing their money in other countries. How do I know this? To quote an example, Warren Buffet, the "Oracle of Omaha," has made no secret of the fact that Berkshire Hathaway has been exploring the foreign markets as a primary source of growth for their investors.

My view on this is that, in a time of war when the country is running huge deficits (with most of the debt being bought by the Chinese, by the way) it is not the right time to continue giving the top 0.5% of people a tax cut that is costing the country more than the entire cost of the Iraq war. I have some folks who agree with me, too. Namely, some of the top economists in the nation who signed a letter in 2003 titled Opposing the Bush Tax Cuts. Like I said, I'm not an economist, but when 10 Nobel Laureates in Economics are calling the president to the carpet, I tend to take notice. If that particular piece of prose is a little dated, there is also the Briefing Paper from the Economic Policy Institute updated in March of 2006 titled THE BOOM THAT WASN'T - The economy has little to show for $860 billion in tax cuts. The long-term health and well-being of the country has been seriously compromised by this gift to the rich.

A couple of final notes. My friend quotes from his research that "Overall, we find that America's lowest-earning one-fifth of households received roughly $8.21 in government spending for each dollar of taxes paid in 2004. Households with middle-incomes received $1.30 per tax dollar, and America's highest-earning households received $0.41." My only issue with this is how do we come up with these numbers, since it is not explained? Are we talking about Social Security and Medicare for retirement? Income credits for the poor, or building highways that lower income people drive to work on? All of the above?

Let me put it another way. If a single person makes $30,000 a year, of that amount they will pay $3,159.00 in Federal Taxes and $2,295.00 in FICA (Social Security and Medicare). Not taking into account State or Local tax burdens, this means that already they have paid out 18.2% of their income in taxes. This is the standard deduction, because most people in this income range cannot itemize deductions (which require the ability to itemize more than the standard deduction of $5,150.00). This leaves them with roughly $2,050.00 per month to pay their bills and feed themselves (assuming no state taxes). Am I advocating lowering their tax burden further? No, I am not. But I am also not going to hold them to the same standard as someone who makes in a day what they make in a month. A serious reexamination of the tax code and all the tax benefits are necessary, including the sacred cows of "home mortgage interest deduction" and "State Income Tax deduction." Why should a millionare who owns a $750,000 house get to deduct $60,000.00 in mortgage interest because they chose to buy a bigger home? Most financial advisers will tell you it is better to buy a home with a mortgage rather than spend your money on it for the tax savings that you will realize (as long as the size of the mortgage allows you to itemize deductions), with the argument being "you can invest your money then into a mutual fund and receive a return of 8-12%, while the government subsidizes your home."

On the flip side, let's take a look at another example. A single lawyer who makes $250,000.00 a year and owns a $750,000.00 home will pay approximately $6,885.00 in FICA and $30,000 in Federal taxes after taking itemized deductions for his home, unreimbursed business expenses, charitable contributions, a home office deduction and the like. This equals out to approximately 14.8% of their income. It also means that they have only $17,760 per month to pay their bills and feed themselves (again, assuming no state taxes). You will notice that I state they will pay $30,000, not $66,303.00. The $66,303.00 is what they would pay if they took the standard deduction. I am making the argument that they would be able to shelter approximately $125,000.00 via deductions. Does this sound excessive? It isn't when you consider that as a small example your car can be deducted if used for business, and that the miles are deducted at $0.485 per mile not considered commuting. There's a reason CPAs get paid big money for working on people's taxes (which is also a deductible expense). Oh, and if they did take the standard deduction (foolish lawyer!) that would leave them with only $14,700.00 per month to live on. Someone needs to let them know where they have to go to get the food stamps.

Here is the bottom line, and the most important part of the debate in my mind. My daughter is 4 years old. All these deficits will come due to be paid when she reaches the work force. Her mother is currently serving in Iraq. The cost of that war, the crumbling infrastructure of this country and crippling debt that will occur in the future could be averted for the most part if we were to reset the tax rates for the top 1% back to what they were paying in 2000 before Bush took office. If we don't do something, we'll be leaving it to our children to shoulder the responsibility for our inaction. I'm sorry, telling people that the best way to support the troops is to go to the mall and buy a pair of jeans is not my idea of good policy. Ask them to sacrifice a little instead by paying what they were paying only a couple of years ago. That would be supporting the troops, because it would mean that the country they are fighting to defend will still be around when they grow old.

My good friend and co-blogger Too Short and I got into an argument yesterday over whether President George W. Bush's administration will go down as one of the worst in American history. Among other things, Too Short objected strenuously to the income tax cuts that President Bush shoved through Congress a few years back. Evaluating the alternative takes some mental heavy lifting, so get ready to push uphill against the big-government mindset.

To my buddy's way of thinking, income tax cuts for "the rich" are a Bad Thing™ in a time of war, and we Americans should follow our grandparents' example during World War II and "sacrifice for the war effort" ... translated as "pay more taxes." Now I don't recall Too Short advocating a revival of programs like rationing and price controls and the WPA, which all went together with the 1930s-1940s package. Then again I might have just missed it when he said it. He wouldn't be the first to substitute wishful thinking for free market realities.

I argued that income tax cuts in wartime are not inherently a Bad Thing™. When taxes in general are excessively high, economic activity tails off as people lose their incentive to work, save, and invest. Next, government revenues shrink because the total amount of money available for taxation has shriveled. The big government advocate instinctively responds by raising taxes, which deepens the downward spiral (the Laffer Curve illustrates the general concept nicely).

If you're a government official trying to fund a wartime military machine, having no tax revenue is truly a Bad Thing™. A logical government in that situation lowers tax rates to stimulate the economy and raise tax revenues. Now it can buy guns and butter and F-22 Raptors. Pretty straightforward stuff so far, right?

My compadre Too Short retorted that I wasn't figuring in federal payroll taxes, which tend to hammer the poor. It was a point well taken since so far I was only talking about income tax cuts. I couldn't puncture his counterclaim because I didn't have the necessary data at my fingertips, so I asked for a temporary ceasefire.

I went looking for ammunition, and to my surprise I found that I was far more right than I realized.

The Tax Foundation pored over the dry, dusty tax and spending data collected by all levels of American government between 1991-2004, and they found that for every $1.00 of taxes that the poorest Americans forked over, they got $8.21 back.

While the U.S. tax system is progressive, the distribution of government spending makes the overall fiscal system more progressive than is apparent from tax distributions alone. Using a microdata model we estimate the distribution of federal, state and local taxes and spending between 1991 and 2004. We find households in the lowest quintile of income received roughly $8.21 in federal, state and local government spending for every dollar of taxes paid in 2004, while households in the middle quintile received $1.30, and households in the top quintile received $0.41. Overall, tax payments exceeded government spending received for the top two quintiles of income, resulting in a net fiscal transfer of between $1.031 trillion and $1.527 trillion between quintiles. Both taxes and spending appear to have large distributional effects on households, and these effects have grown since 1991. The results suggest tax distributions alone are an inadequate measure of progressivity, and policymakers should examine both tax and spending distributions when judging the overall fairness of policy toward income groups.

Did you catch that? Yes, payroll taxes hit poorer people harder than they hit rich people. But when you account for all federal, state and local taxes and government spending on entitlements, my pal Too Short's idea of "increasing our sacrifices" via higher taxes on "the rich" just doesn't cut it. The folks at the lower end of the income scale more than make up for their payroll tax losses, and the folks higher up the line get royally hosed.

Remember that those dastardly "rich people" that our leftist friends love to hate are the very ones who risk their capital to create businesses, conduct research on new technology, and hire the rest of us. Without "the rich" we don't produce the best bullets and boots and cell phones. Without "the rich" our economy loses its advantage over the rest of the world.

Look at how we punish success:

Let that sink in for a moment. Does that seem like a wise idea in peacetime? How much less so in the middle of fighting a war!

Now look at it another way. Focus on the blue bars below:

Don't repeat my initial mistake by looking at tax rates alone. You'll miss the big picture. Always, always, always figure in government spending when you're trying to figure out how to pay for a war. Our steeply progressive tax-and-spend system takes money from America's most productive people and showers it on the least productive. While you can make a good argument for keeping some parts of the social safety net, we're way beyond the point of absurdity now.

While many studies answer the question of who pays taxes in America, the question of who gets the most government spending is often overlooked. Just as some Americans bear a larger portion of the nation's tax burden than others, some Americans also receive a larger share of the nation's government spending.

This report summarizes the key findings of a comprehensive 2007 Tax Foundation study of federal, state and local taxes and government spending. The results show that when we consider the distribution of government spending as well as taxes, it provides a dramatically altered view of how U.S. fiscal policy affects Americans at different income levels than is apparent from the distribution of tax burdens alone.

Overall, we find that America's lowest-earning one-fifth of households received roughly $8.21 in government spending for each dollar of taxes paid in 2004. Households with middle-incomes received $1.30 per tax dollar, and America's highest-earning households received $0.41. Government spending targeted at the lowest-earning 60 percent of U.S. households is larger than what they paid in federal, state and local taxes. In 2004, between $1.03 trillion and $1.53 trillion was redistributed downward from the two highest income quintiles to the three lowest income quintiles through government taxes and spending policy.

These findings suggest tax distributions alone do not tell Americans how much the nation's fiscal system is helping or hurting low-income households. To answer that, we must look beyond tax burdens to government spending as well. Lawmakers who ignore the distribution of government spending risk making policy judgments based on an incorrect set of facts about the United States fiscal system.

In my buddy Too Short's defense, he joined me in criticizing runaway federal spending that makes drunken sailors look frugal. Reasonable folks are tired of creeping socialism, and we expect to see some real spending cuts before 2009's over. And I'm not talking about the Washington version of "cuts."

So what's the bottom line? Income tax cuts are still a good idea, and so are cuts in entitlement spending. If we do both, the economy will surge forward and government revenue will increase along with it. That translates into much more money available for the military. Seventy-year-old notions of "sacrifice" will punish the most productive Americans and further erode our military readiness.

Imagine that the Federal Blog Promotion Administration has a current budget of $100 billion for 2006, and the Bush administration requests $120 billion for 2007.

Now imagine that the happy little piglets on the House Appropriations Committee draft their 2007 budget with another $30 billion in the FBPA authorization bill ... the better to fund several Congressmen's pet projects. Pretty straightforward so far, and sadly very predictable:

Now let's say that the full House of Representatives, backed by the Bush Administration, objects to the pork. They change the FBPA's 2007 budget back to $120 billion, which looks like this:

Naturally, if you're a tax-and-spend Washington politician and you hate being told "no", you immediately call a press conference to denounce the horrible "cut" in the FBPA budget.

But wait! How can it be a "cut" if the budget went up? It's called "baseline budgeting", and it's a deceptively easy way to scare uninformed constituents into supporting the tax-and-spend piglets in expensive suits.

The Congressional Budget Office defines the baseline as a benchmark for measuring the budgetary effects of proposed changes in federal revenue or spending, with the assumption that current budgetary policies or current services are continued without change. The baseline includes automatic adjustments for inflation and anticipated increases in program participation. Baseline, or current services, budgeting, therefore builds automatic, future spending increases into Congress's budgetary forecasts.

Baseline budgeting tilts the budget process in favor of increased spending and taxes. For example, if an agency's budget is projected to grow by $100 million, but only grows by $75 million, according to baseline budgeting, that agency sustained a $25 million cut. That is analogous to a person who expects to gain 100 pounds only gaining 75 pounds, and taking credit for losing 25 pounds. The federal government is the only place this absurd logic is employed.

You can also sometimes see the flip side of this silliness in action when politicians try to paint themselves as budget-cutters, while actually spending more. You've heard of stores that fool consumers by artificially raising prices just before a "deep discount sale", right? Politicians pull the same trick regularly.

So the next time you hear scary stories like "cuts in the Veterans' Administration budget", don't swallow the bait without thinking. First, find out whether those sneaky politicians are playing the baseline budgeting game again.